CME FedWatch Tool: In Sept, 2.7% chance of Fed to keep rates between 4.25%-4.50%; 97.3% chance of 25 bps rate cut to 4.00%-4.25%

CME FedWatch Tool: In Sept, 2.7% chance of Fed to keep rates between 4.25%-4.50%; 97.3% chance of 25 bps rate cut to 4.00%-4.25%

The Federal Reserve (Fed) is expected to cut interest rates at its September meeting, with the CME FedWatch Tool indicating a 97.3% probability of a 25 basis point (bps) reduction, bringing rates between 4.00% and 4.25% [1]. This expectation is driven by market sentiment and dovish comments from Fed officials, as well as recent labor market data showing weakness.

However, several experts argue that the hard economic data signals the Fed should not cut rates. Justin D’Ercole, founder and CIO at ISO-MTS Capital Management, contends that the economy is growing at potential, stock valuations are extreme, inflation is running at 3%, and unemployment remains historically low [2]. He adds that aggregate labor income is rising at a 4–5% pace, while credit card delinquencies are down year over year.

Kurt S. Altrichter, founder of Ivory Hill, echoes this sentiment, noting that core PCE (Personal Consumption Expenditure) inflation is back at 2.9% and GDP printed 3.3% in the latest data. He argues that the risk is that the Fed will cave to market pressure, potentially fueling inflationary pressures and asset bubbles [3].

The broader debate boils down to credibility versus relief. While cutting rates may temporarily ease pressure on indebted households and businesses, critics argue it risks fueling inflationary pressures and long-term instability. The Fed faces one of its toughest policy tests in decades, deciding whether to follow the data or the crowd.

In Europe, investors are awaiting the U.S. jobs report for direction, with expectations that it will reinforce bets for a Fed rate cut. Asian markets were mostly higher, with the dollar retreating and gold holding firm near $3,560 per ounce [4].

The Fed’s expected rate cut reflects a shift in monetary policy toward easing, consistent with evolving inflation and labor market conditions. Market participants have increasingly aligned their views with the central bank's projected path, with the focus narrowing to a 25-basis-point reduction. This adjustment highlights a growing confidence in the resilience of the economy, with inflation showing signs of moderation and employment remaining robust.

The September 2025 meeting marks a pivotal point in the Federal Reserve’s policy cycle, with the decision to cut rates by 25 basis points signaling a continued accommodative stance. This action is likely to support borrowing and investment while reinforcing confidence in the broader economic outlook.

The Federal Reserve’s expected rate cut of 25 basis points in September is a calculated response to current economic conditions. The move reflects a measured approach to monetary easing, with policymakers prioritizing stability and adaptability. As the central bank continues to monitor inflation and labor market trends, the September decision is seen as a foundational step in shaping the broader trajectory of monetary policy through the remainder of 2025.

References:
[1] https://www.mitrade.com/insights/more/mores/beincrypto-USDOLLARF-202509041804
[2] https://www.nasdaq.com/articles/european-shares-set-steady-open-us-jobs-report
[3] https://www.ainvest.com/news/federal-reserve-anticipated-cut-interest-rates-25-basis-points-september-2025-2509/
[4] https://www.moomoo.com/news/post/36058622/record-tr4cking-news-august-jobs-report-preview-a-september-cut-is-a-given